Philippine Trust Co. vs.

Rivera
G.R. No. L-19761
January 29, 1923

FACTS:
Cooperative Naval Filipinas was incorporated under the Philippine laws. Mariano
Rivera was one of the incorporators. The AOI were registered in the Bureau of
Commerce and Industry. In the course of time, the corporation became
insolvent and went into the hands of Phil. Trust Co., as assignee in bankruptcy.
Phil. Trust Co instituted an action to recover unpaid stock subscription of
Mariano Rivera. Mariano Rivera insists the resolution that has been made on the
reduction of the capital, the reason why he did not fully pay the entire
subscription.

ISSUE: WON the reduction of the corporate capital by releasing the subscribers from
payment of their subscription is valid and proper.

HELD: It is established doctrine that subscription to the capital of a corporation

constitute a find to which creditors have a right to look for satisfaction of their
claims and that the assignee in insolvency can maintain an action upon any
unpaid stock subscription in order to realize assets for the payment of its debts.
(Velasco vs. Poizat, 37 Phil., 802.)

A corporation has no power to release an original subscriber to its capital stock

from the obligation of paying for his shares, without a valuable consideration for
such release; and as against creditors a reduction of the capital stock can take
place only in the manner an under the conditions prescribed by the statute or
the charter or the articles of incorporation. Moreover, strict compliance with the
statutory regulations is necessary.

In the case at bar, therefore held that the resolution relied upon the Mariano
Rivera was without effect and that Mariano Rivera was still liable for the unpaid
balance of his subscription.

Marcus vs. RH Macy

74 N.E. 2d 228
(1947)

FACTS: The Board of Directors gave notice to SH that among the matters to be acted
upon in its annual meeting would be a proposal to amend certificate of
incorporation to add tothe rights of preferred stockholders, voting rights equal
to those of common stockholders. Marcus objected and demanded payment for
the common stock owned by her.

ISSUE: WON Marcus can exercise her appraisal right.

HELD: The Court held that Marcus may invoke her appraisal right. The aggregate
number of shares having voting rights equal to those of common shares was
substantially increased and thereby the voting power of each common share
outstanding prior to the meeting was altered or limited by the resulting pro rata
diminution of its potential worth as a factor in the management of the
corporate affairs. Considering that she held diminished voting power; that she
notified the corporation of her objection; that her shares were voted against the
 amendmentthese were sufficient to qualify her to invoke her statutory
appraisal right.

Marcus, since May 19, 1943, has been the registered owner of fifty shares of the
common stock of, R.H. Macy Co., Inc. On September 28, 1945, R.H. Macy Co., Inc gave
formal notice to its stockholders, including the Marcus, that among other matters to be
acted upon at its annual meeting to be held on October 30, 1945, would be a proposal,
recommended by its board of directors, that its certificate of incorporation be so
amended as to add to the rights of preferred stockholders voting rights, equal share for
share, to those to which the holders of the corporation's common stock are entitled. On
October 27, 1945, prior to the annual meeting to which such notice referred, MARCUS
sent to the R.H. Macy Co., Inc by registered mail a written notice that, as a common
stockholder, she objected to the proposed amendment of the certificate of
incorporation, and to the adoption of any resolution designed to effect an amendment
by which there would be added to the rights of owners of the corporation's preferred
stock voting r ights equal, share for share, to the voting rights of common stockholders.
By her written notice of objection MARCUS also demanded payment for the common
stock then owned by her. Subsequently, at the annual meeting of the corporation
when the proposal to amend the certificate of incorporation was approved by the
stockholders the common stock owned by the MACUS was voted against such
amendment.

Thereafter, as a non-consenting common stockholder, MARCUS instituted the present

proceeding to determine the value of her stock as a basis for the enforcement of
payment therefor. (Stock Corporation Law, 21, 38, subd. 9, par. [d].) At Special Term
her application for the appointment of appraisers to evaluate her stock was denied and
the petition herein was dismissed. Upon her appeal to the Appellate Division the order of
Special Term was unanimously affirmed.

By this appeal which was taken by our leave we are to determine whether upon the
facts of record before us MARCUS may invoke paragraph (d) subdivision 9 of section 38
of the Stock Corporation Law as a means legally appropriate to accomplish the appraisal
of her stock and to enforce payment therefor.

R.H. Macy Co., Inc. does not deny MARCUS allegation that prior to its corporate action
taken on October 30, 1945, to which she objected, the corporation had an authorized
capitalization of 500,000 shares of cumulative preferred stock ($100 par value) and
2,500,000 shares of common stock (without par value); nor is it denied that there were
then issued and outstanding 165,600 shares of authorized preferred stock and 1,656,000
shares of common stock. It also appeared that prior to the annual stockholders' meeting
of October 30, 1945, R.H. Macy Co., Inc 's certificate of incorporation gave to the holders
of the preferred stock no voting rights except in the event of specified contingencies.

Concededly the amendment to the R.H. Macy Co., Inc's certificate of incorporation,
adopted by the stockholders at the annual meeting of October 30, 1945, granted to the
holders of the corporation's preferred stock additional rights which increased their voting
privileges from a right to vote only in specified contingencies to voting rights equal to
those of the holders of the corporation's common stock. By thus granting to the 165,600
preferred shares then outstanding voting rights equal share for share to those to which
the holders of common stock are entitled, the aggregate number of shares having voting
rights equal to those of the common shares was substantially increased and thereby the
voting power of each common share outstanding prior to October 30, 1945, was altered
or limited by the resulting prorata diminution of its potential worth as a factor in the
management of the corporation's affairs.
We conclude that such an alteration or limitation in the voting power of the common
shares held by the MARCUS when considered with the facts that she gave to R.H.
Macy Co., Inc formal written notice of her objection to the proposed amendment to the
corporation's charter with a demand for payment for her stock, and thereafter caused
her shares to be voted against that amendment at the annual meeting of October 30,
1945 was sufficient to qualify her to invoke the statutory procedure upon which the
present proceeding is based.

By paragraph (E) of section 36 of the Stock Corporation Law R.H. Macy Co., Inc was given
the right to alter the "privileges or voting powers of any shares previously authorized, or
the restrictions or qualifications thereof * * *." But that statutory right was burdened
with conditions set forth in section 38, which section provides in part:

" 38. PROVISIONS APPLICABLE TO ONE OR MORE PROCEEDINGS UNDER SECTIONS

TWENTY-EIGHT AND THIRTY-SIX. The following provisions shall be applicable to a
certificate under * * * section thirty-six. * * *

"9. 2If the certificate * * *

(d) abolishes any voting right of the holders of shares of any class or limits their voting
rights, except as the same may be limited by the voting rights given to new shares of any
class authorized by the certificate;

any holder of any such shares not in favor of such action may at any time prior to the
vote authorizing such action * * * object to such action and demand payment for his
stock, and thereupon such stockholder or the corporation shall have the right, subject to
the conditions and provisions of section twenty-one, to have such stock appraised and
paid for as provided in said section. Such objection and demand must be in writing and
filed with the corporation." (Emphasis supplied.)

When, in the present proceeding, Special Term concluded that, within the meaning of
the statute last quoted above, the new voting privileges granted to respondent's
preferred stockholders at the meeting of October 30, 1945, did not cause such a
deprivation of an existing stockholder's rights as would justify granting the relief sought
by this proceeding, the court cited our ruling in Matter of Kinney ( 279 N.Y. 423) as
authority for its decision. In doing so we think Special Term failed to give proper weight
to the decisive fact that the amendment to the certificate of incorporation which was
objected to by the petitioner in the Kinney case ( supra), involved a new and previously
unauthorized issue of preferred stock, while in the case at bar the charter amendment,
to which the appellant objects, granted new voting rights equal to those of the
common shares to previously authorized preferred stock of which 165,600 shares
were then issued and outstanding. The significance of that fact is emphasized by the
following excerpt from the opinion per FINCH, J., at pages 430-431 "* * * section 38
permits an appraisal only when an amended certificate alters the preferential rights of
the outstanding stock of a corporation as between the different classes of stock * * * it
does not apply to a case where such rights are left unchanged as between themselves,
but are both made subject to a new issue of stock." ( Matter of Kinney, supra.) (Emphasis
supplied.)

In that connection it is significant that when after our decision in the Kinney case (
supra) the Legislature, by chapter 600 of the Laws of 1943, amended subdivision 9 of
section 38 by granting to a non consenting stockholder the right to an appraisal of his
stock "If the certificate * * * (d) abolishes any voting right of the holders of shares of
any class or limits their voting rights * * *", it added the following provision "except as
the same may be limited by the voting rights given to new shares of any class authorized
by the certificate". (Emphasis supplied.) (And see Stock Corporation Law, 36, par. [E]
and, 38, subd. 11, as those sections were amended by L. 1943, ch. 600.)

In the case at bar, as we have seen, MARCUS as the owner of R.H. Macy Co., Inc's
common stock objects to corporate action which granted to previously authorized
preferred stock the right to vote upon matters as to which the common stock, prior to
such action, had the exclusive right to vote. Our conclusion is that, by thus limiting the
voting power of the MARCUS' common shares to a proportionate extent measured at a
given time by the number of preferred shares then issued and outstanding, the corporate
action to which the appellant has objected was of such a character as to afford her a legal
basis to invoke the procedure prescribed by paragraph (d) of subdivision 9 of section 38,
as a means to accomplish the appraisal of her stock and payment therefor.

With emphasis placed upon the fact that of the 1,656,000 shares of R.H. Macy Co., Inc 's
common stock outstanding MARCUS owns only 50 shares, we are told in support of R.H.
Macy Co., Inc S position that "The effect of the amendment upon R.H. Macy Co., Inc 's
stock (if any) was so trivial and insignificant that it may fairly be described as de minimis."
We are also told that if MARCUS had a bona fide desire to sell her stock at market value
she could have done so on October 30, 1945, for approximately three times the amount
of her investment and at more than twenty points per share above its book value. These
asserted facts form the basis for the respondent's argument that the appellant's
application now before us should be denied because it was not made in good faith.

2As to that argument it is enough to say that the Legislature has clearly prescribed the
conditions under which a non-consenting stockholder may have his stock evaluated and
enforce payment therefor. We find in those conditions no legislative declaration of a
minimum percentage or value of stock which must be owned by a non-consenting
stockholder to qualify him to invoke the prescribed statutory procedure. (Cf. General
Corporation Law, 61-b.)

In Anderson v. International Minerals Chemical Corp. ( 295 N.Y. 343), we dealt with an
analogous situation which arose as an incident to a corporate consolidation. There, as in
the case at hand, we considered the Legislature's purpose in enacting those provisions of
the Stock Corporation Law which, under prescribed conditions, grant to dissenting
shareholders the right to have their stock holdings appraised and to enforce payment
therefor. Referring to the legislative purpose Judge THACHER wrote for the court at page
350: "The remedy of appraisal and payment was intended to afford fair and just
compensation to the dissenters and at the same time provide the method by which their
objections could be fairly composed so as to enable the consolidation to proceed."

Where, as in this instance, the Legislature by precise language has created a right and
with equal precision has set forth the procedure by which that right may be availed of,
the courts may not limit or enlarge that right or alter that procedure. ( Matter of Cantor,
261 N.Y. 6, 12; Thompkins v. Hunter, 149 N.Y. 117, 122-123.)

The orders should be reversed and the matter remitted to Special Term for further
proceedings not inconsistent with this opinion, with costs in all courts to the appellant.

LOUGHRAN, Ch. J., CONWAY, DESMOND, THACHER, DYE and FULD, JJ., concur.

Orders reversed, etc.

Iglesia Evangelica Metodista En Las Islas Filipinas vs. Bishop Lazaro
G.R. No. 184088;
July 6, 2010

FACTS:
IEMELIF is a corporation sole. It was registered and by-laws were created which
empowered the election of officers to manage the affairs of the organization.
Although, IEMELIF remained a corporation sole on paper, it had always acted
like a corporation aggregate. The Consistory, IEMELIFs Board Of Directors,
together with the general membership change the organizational structure from
corporation sole to corporation aggregate, which was approved by SEC.
However, the corporate papers remained unaltered as a corporation sole.

28 years later, the issue re-emerge. The SEC answered, this time, is that the
conversion was not properly carried out and documented and that it needed to
amend its Articles Of Incorporation for that purpose. Acting on the advice, the
Consistory (IEMELIF has a resolution establishing the CONSISTORY made up of
church ministers,who has served for at least 4 years) resolved to convert but
petitioner Rev. Nestor Pineda in IEMELIFs name did not support the conversion.
He claims that a complete shift from IEMELIFs status as a corporation sole to a
corporation aggregate required, not just an amendment of the IEMELIFs articles
of incorporation, but a complete dissolution of the existing corporation sole
followed by a re-incorporation.

ISSUE: WON a corporation sole may be converted into a corporation aggregate by mere
amendment of its articles of incorporation.

HELD: A corporation may change its character as a corporation sole into a corporation
aggregate by mere amendment of its articles of incorporation without first going
through the process of dissolution.

True, the Corporation Code provides no specific mechanism for amending the
articles of incorporation of a corporation sole. However, Section 109 of the
Corporation Code allows the application to religious corporations of the general
provisions governing non-stock corporations.

For non-stock corporations, the power to amend its articles of incorporation lies
in its members. The code requires two-thirds of their votes for the approval of
such an amendment. So how will this requirement apply to a corporation sole
that has technically but one member (the head of the religious organization)
who holds in his hands its broad corporate powers over the properties, rights,
and interests of his religious organization?

Although a non-stock corporation has a personality that is distinct from those of

its members who established it, its articles of incorporation cannot be amended
solely through the action of its board of trustees. The amendment needs the
concurrence of at least two-thirds of its membership. If such approval
mechanism is made to operate in a corporation sole, its one member in whom
all the powers of the corporation technically belongs, needs to get the
concurrence of two-thirds of its membership. The one member, here the
General Superintendent, is but a trustee, according to Section 110 of the
Corporation Code, of its membership. There is no point to dissolving the
 corporation sole of one member to enable the corporation aggregate to emerge
from it.

Whether it is a non-stock corporation or a corporation sole, the corporate being

remains distinct from its members, whatever be their number. The increase in
the number of its corporate membership does not change the complexion of its
corporate responsibility to third parties. The one member, with the concurrence
of two-thirds of the membership of the organization for whom he acts as
trustee, can self-will the amendment. He can, with membership concurrence,
increase the technical number of the members of the corporation from sole or
one to the greater number authorized by its amended articles.

SEPARATE OPINION OF J.CARPIO:

A corporation sole, as the lone trustee and member of the corporation, can
amend its articles of incorporation.

The religious denomination, sect or church represented by the corporation sole

has members who are distinct and different from the member of the
corporation sole. The members of the religious organization should not be
considered for purposes of Section 16. Thus, the votes of those members are
not necessary in amending the articles of incorporation of the corporation sole,
the vote of the latter being sufficient in effecting the amendment.

For instance, the rules on the sale of properties of a corporation sole are
governed by Section 113 of the Code.

CORPORATION SOLE - may sell or mortgage real properties held by it in

accordance with the rules, regulations and discipline of the religious
denomination, sect or church concerned. It is only in the absence of such rules
that court intervention becomes necessary, and real properties are sold or
mortgaged by obtaining an order from the Regional Trial Court of the province
where the property is situated.

CORPORATION AGGREGATE - sale or other disposition of all or substantially all

of the properties and assets of a corporation aggregate shall be governed by
Section 40 of the Code which applies to stock and non-stock corporations. The
sale, lease, exchange, mortgage, pledge or disposition of all or substantially all of
the properties and assets of the corporation may generally be done through a
majority vote of its board of trustees, and the vote of at least two-thirds of its
members in a members meeting duly called for that purpose.

A corporation aggregate may not apply its own rules, regulations and
discipline in selling all or substantially all of its properties, as this process shall be
governed by secular principles and rules of law.
Gamboa vs. Teves
G.R. No. 176579
June 28, 2011

FACTS:

This is a petition to nullify the sale of shares of stock of Philippine Telecommunications

Investment Corporation (PTIC) by the government of the Republic of the Philippines, acting
through the Inter-Agency Privatization Council (IPC), to Metro Pacific Assets Holdings, Inc.
(MPAH), an affiliate of First Pacific Company Limited (First Pacific), a Hong Kong-based
investment management and holding company and a shareholder of the Philippine Long
Distance Telephone Company (PLDT).

The Gamboa questioned the sale on the ground that it also involved an indirect sale of 12
million shares (or about 6.3 percent of the outstanding common shares) of PLDT owned by
PTIC to First Pacific. With this sale, First Pacifics (HONG-KONG CORPORATION)s common
shareholdings in PLDT increased from 30.7 percent to 37 percent, thereby increasing the total
common shareholdings of foreigners in PLDT to about 81.47%. This, according to the
petitioner, violates Section11, Article XII of the 1987 Philippine Constitution which limits
foreign ownership of the capital of a public utility to not more than 40%, thus:

Section 11. No franchise, certificate, or any other form of authorization for the
operation of a public utility shall be granted except to citizens of the Philippines or to
corporations or associations organized under the laws of the Philippines, at least
sixty per centum of whose capital is owned by such citizens; x x x

(1) foreigners own 64.27% of the common shares of PLDT, which class of shares exercises
the sole right to vote in the election of directors, and thus exercise control over PLDT; (2)
Filipinos own only 35.73% of PLDTs common shares, constituting a minority of the voting
stock, and thus do not exercise control over PLDT; (3) preferred shares, 99.44% owned by
Filipinos, have no voting rights; (4) preferred shares earn only 1/70 of the dividends that
common shares earn; (5) preferred shares have twice the par value of common shares;
and (6) preferred shares constitute 77.85% of the authorized capital stock of PLDT and
common shares only 22.15%.
COMMON SHARE PREFFERED SHARE
(SOLE RIGHT TO VOTE) (NO VOTING RIGHTS)
FOREIGNER 64.27%
FILIPINO 35.73% 99.44%

(2) This kind of ownership and control of a public utility is a mockery of the Constitution.

ISSUE: Does the term capital in Section 11, Article XII of the Constitution refer to the total common
shares only, or to the total outstanding capital stock (combined total of common and non-
voting preferred shares) of PLDT, a public utility?

HELD:
The Court partly granted the petition and held that the term capital in Section 11, Article XII
of the Constitution refers only to shares of stock entitled to vote in the election of directors of
a public utility, i.e., to the total common shares in PLDT.

Considering that common shares have voting rights which translate to control, as opposed to
preferred shares which usually have no voting rights, the term capital in Section 11, Article
XII of the Constitution refers only to common shares. However, if the preferred shares also
have the right to vote in the election of directors, then the term capital shall include such
preferred shares because the right to participate in the control or management of the
corporation is exercised through the right to vote in the election of directors.

In short, the term capital in Section 11, Article XII of the Constitution refers only to shares of
stock that can vote in the election of directors. To construe broadly the term capital as the
total outstanding capital stock, including both common and non-voting preferred shares,
grossly contravenes the intent and letter of the Constitution that the State shall develop a
self-reliant and independent national economy effectively controlled by Filipinos. A broad
definition unjustifiably disregards who owns the all-important voting stock, which necessarily
equates to control of the public utility.

Section 137. Outstanding capital stock defined. The term outstanding capital stock, as used in
this Code, means the total shares of stock issued under binding subscription agreements to
subscribers or stockholders, whether or not fully or partially paid, except treasury shares.

The Corporation Code of the Philippines42 classifies shares as common or preferred, thus:
Sec. 6. Classification of shares.
The shares of stock of stock corporations may be divided into classes or series of shares, or
both, any of which classes or series of shares may have such rights, privileges or restrictions as
may be stated in the articles of incorporation: Provided, That no share may be deprived of
voting rights except those classified and issued as preferred or redeemable shares, unless
otherwise provided in this Code: Provided, further, That there shall always be a class or series
of shares which have complete voting rights. Any or all of the shares or series of shares may
have a par value or have no par value as may be provided for in the articles of incorporation:
Provided, however, That banks, trust companies, insurance companies, public utilities, and
building and loan associations shall not be permitted to issue no-par value shares of stock.

Preferred shares of stock issued by any corporation may be given preference in the
distribution of the assets of the corporation in case of liquidation and in the distribution of
dividends, or such other preferences as may be stated in the articles of incorporation which
are not violative of the provisions of this Code: Provided, That preferred shares of stock may
be issued only with a stated par value. The Board of Directors, where authorized in the articles
of incorporation, may fix the terms and conditions of preferred shares of stock or any series
thereof: Provided, That such terms and conditions shall be effective upon the filing of a
certificate thereof with the Securities and Exchange Commission.

Shares of capital stock issued without par value shall be deemed fully paid and non-assessable
and the holder of such shares shall not be liable to the corporation or to its creditors in respect
thereto: Provided; That shares without par value may not be issued for a consideration less
than the value of five (P5.00) pesos per share: Provided, further, That the entire consideration
received by the corporation for its no-par value shares shall be treated as capital and shall not
be available for distribution as dividends.

A corporation may, furthermore, classify its shares for the purpose of insuring compliance with
constitutional or legal requirements.

Except as otherwise provided in the articles of incorporation and stated in the certificate of
stock, each share shall be equal in all respects to every other share.

Where the articles of incorporation provide for non-voting shares in the cases allowed by this
Code, the holders of such shares shall nevertheless be entitled to vote on the following
matters:
1. Amendment of the articles of incorporation;
2. Adoption and amendment of by-laws;
3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially
all of the corporate property;
4. Incurring, creating or increasing bonded indebtedness;
5. Increase or decrease of capital stock;
6. Merger or consolidation of the corporation with another corporation or other
corporations;
7. Investment of corporate funds in another corporation or business in accordance
with this Code; and
8. Dissolution of the corporation.

Except as provided in the immediately preceding paragraph, the vote necessary to approve a
particular corporate act as provided in this Code shall be deemed to refer only to stocks with
voting rights.
Narra Nickel Mining and Devt Corp. vs Redmont Consolidated Mines Corporation
G.R. No. 195580
April 21, 2014

FACTS:

Sometime in December 2006, Redmont Consolidated Mines Corp. (Redmont), a

domestic corporation organized and existing under Philippine laws, took interest
in mining and exploring certain areas of the province of Palawan. After inquiring
with the Department of Environment and Natural Resources (DENR), it learned
that the areas where it wanted to undertake exploration and mining activities
where already covered by Mineral Production Sharing Agreement (MPSA)
applications of petitioners Narra, Tesoro and McArthur.

McArthur, through its predecessor-in-interest Sara Marie Mining, Inc. (SMMI),

filed an application for an MPSA and Exploration Permit (EP) with the Mines and
Geo-Sciences Bureau (MGB), Region IV-B, Office of the Department of
Environment and Natural Resources (DENR). Subsequently, SMMI was issued
MPSA-AMA-IVB-153 covering an area of over 1,782 hectares in Barangay
Sumbiling, Municipality of Bataraza, Province of Palawan and EPA-IVB-44 which
includes an area of 3,720 hectares in Barangay Malatagao, Bataraza, Palawan.
The MPSA and EP were then transferred to Madridejos Mining Corporation
(MMC) and, on November 6, 2006, assigned to petitioner McArthur. Petitioner
Narra acquired its MPSA from Alpha Resources and Development Corporation
and Patricia Louise Mining & Development Corporation (PLMDC) which
previously filed an application for an MPSA with the MGB, Region IV-B, DENR on
January 6, 1992. Through the said application, the DENR issued MPSA-IV-1-12
covering an area of 3.277 hectares in barangays Calategas and San Isidro,
Municipality of Narra, Palawan.

Subsequently, PLMDC conveyed, transferred and/or assigned its rights and

interests over the MPSA application in favor of Narra. Another MPSA application
of SMMI was filed with the DENR Region IV-B, labeled as MPSA-AMA-IVB-154
(formerly EPA-IVB-47) over 3,402 hectares in Barangays Malinao and Princesa
Urduja, Municipality of Narra, Province of Palawan. SMMI subsequently
conveyed, transferred and assigned its rights and interest over the said MPSA
application to Tesoro. On January 2, 2007, Redmont filed before the Panel of
Arbitrators (POA) of the DENR three (3) separate petitions for the denial of
petitioners applications for MPSA designated as AMA-IVB-153, AMA-IVB-154
and MPSA IV-1-12. In the petitions, Redmont alleged that at least 60% of the
capital stock of McArthur, Tesoro and Narra are owned and controlled by MBMI
Resources, Inc. (MBMI), a 100% Canadian corporation. Redmont reasoned that
since MBMI is a considerable stockholder of petitioners, it was the driving force
behind petitioners filing of the MPSAs over the areas covered by applications
since it knows that it can only participate in mining activities through
corporations which are deemed Filipino citizens. Redmont argued that given
that petitioners capital stocks were mostly owned by MBMI, they were likewise
disqualified from engaging in mining activities through MPSAs, which are
reserved only for Filipino citizens.
 Section 3(aq) of Republic Act No. (RA) 7942 or the Philippine Mining Act of 1995
which provided:

Sec. 3 Definition of Terms. As used in and for purposes of this Act, the following
terms, whether in singular or plural, shall mean:

xxxx
(aq) "Qualified person" means any citizen of the Philippines with capacity to
contract, or a corporation, partnership, association, or cooperative organized or
authorized for the purpose of engaging in mining, with technical and financial
capability to undertake mineral resources development and duly registered in
accordance with law at least sixty per cent (60%) of the capital of which is
owned by citizens of the Philippines: Provided, That a legally organized foreign-
owned corporation shall be deemed a qualified person for purposes of granting
an exploration permit, financial or technical assistance agreement or mineral
processing permit.

NARRA, TESORO AND MCARTHURS CONTENTION:

The issue on nationality should not be raised since McArthur, Tesoro
and Narra are in fact Philippine Nationals as 60% of their capital is owned by
citizens of the Philippines. They asserted that though MBMI owns 40% of the
shares of PLMC (which owns 5,997 shares of Narra), 40% of the shares of MMC
(which owns 5,997 shares of McArthur) and 40% of the shares of SLMC (which,
in turn, owns 5,997 shares of Tesoro), the shares of MBMI will not make it the
owner of at least 60% of the capital stock of each of petitioners. They added
that the best tool used in determining the nationality of a corporation is the
"control test,"

CA RULING:
Using the grandfather rule, the CA discovered that MBMI in effect owned majority of the
common stocks of the petitioners as well as at least 60% equity interest of other majority
shareholders of petitioners through joint venture agreements. The CA found that through
a "web of corporate layering, it is clear that one common controlling investor in all
mining corporations involved x x x is MBMI." Thus, it concluded that petitioners
McArthur, Tesoro and Narra are also in partnership with, or privies-in-interest of, MBMI.

1ST ISSUE:
Whether or not the petitioner corporations are Filipino and can validly be issued
MPSA and EP.

HELD:
No. The SEC Rules provide for the manner of calculating the Filipino interest in a
corporation for purposes, among others, of determining compliance with
nationality requirements (the Investee Corporation). Such manner of
computation is necessary since the shares in the Investee Corporation may be
owned both by individual stockholders (Investing Individuals) and by
corporations and partnerships (Investing Corporation). The said rules thus
provide for the determination of nationality depending on the ownership of the
Investee Corporation and, in certain instances, the Investing Corporation.

Under the SEC Rules, there are two cases in determining the nationality of the
Investee Corporation.

The first case is the liberal rule, later coined by the SEC as the Control Test in its
30 May 1990 Opinion, and pertains to the portion in said Paragraph 7 of the
1967 SEC Rules which states, (s)hares belonging to corporations or partnerships
 at least 60% of the capital of which is owned by Filipino citizens shall be
considered as of Philippine nationality. Under the liberal Control Test, there is
no need to further trace the ownership of the 60% (or more) Filipino
stockholdings of the Investing Corporation since a corporation which is at least
60% Filipino-owned is considered as Filipino.

The second case is the Strict Rule or the Grandfather Rule Proper and pertains to
the portion in said Paragraph 7 of the 1967 SEC Rules which states, but if the
percentage of Filipino ownership in the corporation or partnership is less than
60%, only the number of shares corresponding to such percentage shall be
counted as of Philippine nationality. Under the Strict Rule or Grandfather Rule
Proper, the combined totals in the Investing Corporation and the Investee
Corporation must be traced (i.e., grandfathered) to determine the total
percentage of Filipino ownership. Moreover, the ultimate Filipino ownership of
the shares must first be traced to the level of the Investing Corporation and
added to the shares directly owned in the Investee Corporation.

In other words, based on the said SEC Rule and DOJ Opinion, the Grandfather
Rule or the second part of the SEC Rule applies only when the 60-40 Filipino-
foreign equity ownership is in doubt (i.e., in cases where the joint venture
corporation with Filipino and foreign stockholders with less than 60% Filipino
stockholdings [or 59%] invests in other joint venture corporation which is either
60-40% Filipino-alien or the 59% less Filipino). Stated differently, where the 60-
40 Filipino- foreign equity ownership is not in doubt, the Grandfather Rule will
not apply.

2ND ISSUE:
W/N the Grandfather Rule must be applied in this case.
HELD:
Yes. It is the intention of the framers of the Constitution to apply the
Grandfather Rule in cases where corporate layering is present.

First, as a rule in statutory construction, when there is conflict between the

Constitution and a statute, the Constitution will prevail. In this instance,
specifically pertaining to the provisions under Art. XII of the Constitution on
National Economy and Patrimony, Sec. 3 of the FIA will have no place of
application. Corporate layering is admittedly allowed by the FIA, but if it is used
to circumvent the Constitution and other pertinent laws, then it becomes illegal.

Second, under the SEC Rule1 and DOJ Opinion 2 , the Grandfather Rule must be
applied when the 60-40 Filipino-foreign equity ownership is in doubt. Doubt is
present in the Filipino equity ownership of Narra, Tesoro, and MacArthur since
their common investor, the 100% Canadian-owned corporation MBMI, funded
them.

Under the Grandfather Rule, it is not enough that the corporation does have the
required 60% Filipino stockholdings at face value. To determine the percentage
of the ultimate Filipino ownership, it must first be traced to the level of the
investing corporation and added to the shares directly owned in the investee
corporation. Applying this rule, it turns out that the Canadian corporation owns
more than 60% of the equity interests of Narra, Tesoro and MacArthur. Hence,
the latter are disqualified to participate in the exploration, development and
utilization of the Philippines natural resources.
Roman Catholic Apostolic Administrator Of Davao V. LRC (1957)
G.R. No. L-8451 December 20, 1957

FACTS:
October 4, 1954: Mateo L. Rodis, a Filipino citizen and resident of the City of
Davao, executed a deed of sale of a parcel of land in favor of the Roman Catholic
Apostolic Administrator of Davao Inc.(Roman), a corporation sole organized and
existing in accordance with Philippine Laws, with Msgr. Clovis Thibault, a
Canadian citizen, as actual incumbent.

The Register of Deeds of Davao for registration, having in mind a previous

resolution of the CFI in Carmelite Nuns of Davao were made to prepare an
affidavit to the effect that 60% of the members of their corp. were Filipino
citizens when they sought to register in favor of their congregation of deed of
donation of a parcel of land, required it to submit a similar affidavit declaring
the same.

June 28, 1954: Roman in the letter expressed willingness to submit an affidavit
but not in the same tenor as the Carmelite Nuns because it had five
incorporators while as a corporation sole it has only one and it was ownership
through donation and this was purchased

As the Register of the Land Registration Commissioner (LRC) : Deeds has some
doubts as to the register ability, the matter was referred to the Land
Registration Commissioner en consulta for resolution (section 4 of Republic Act
No. 1151) LRC:
In view of the provisions of Section 1 and 5 of Article XIII of the
Philippine Constitution, the vendee was not qualified to acquire private
lands in the Philippines in the absence of proof that at least 60 per
centum of the capital, property, or assets of the Roman Catholic
Apostolic Administrator of Davao, Inc., was actually owned or
controlled by Filipino citizens, there being no question that the present
incumbent of the corporation sole was a Canadian citizen
ordered the Registered Deeds of Davao to deny registration of the deed
of sale in the absence of proof of compliance with such condition
action for mandamus was instituted by Roman alleging the land is held
in true for the benefit of the Catholic population of a place

ISSUE: W/N Roman is qualified to acquire private agricultural lands in the Philippines
pursuant to the provisions of Article XIII of the Constitution

HELD:
YES. Register of Deeds of the City of Davao is ordered to register the deed of
sale. A corporation sole consists of one person only, and his successors (who will
always be one at a time), in some particular station, who are incorporated by
law in order to give them some legal capacities and advantages, particularly that
of perpetuity, which in their natural persons they could not have had.
In this sense, the king is a sole corporation; so is a bishop, or dens, distinct from
their several chapters, corporation sole composed of only one persons, usually
the head or bishop of the diocese, a unit which is not subject to expansion for
the purpose of determining any percentage whatsoever
 Only the administrator and not the owner of the temporalities located in the
territory comprised by said corporation sole and such temporalities are
administered for and on behalf of the faithful residing in the diocese or territory
of the corporation sole

has no nationality and the citizenship of the incumbent and ordinary has nothing
to do with the operation, management or administration of the corporation
sole, nor effects the citizenship of the faithful connected with their respective
dioceses or corporation sole.

Constitution demands that in the absence of capital stock, the controlling

membership should be composed of Filipino citizens. (Register of Deeds of Rizal
vs. Ung Sui Si Temple) There is undeniable proof that the members of the
Roman Catholic Apostolic faith within the territory of Davao are predominantly
Filipino citizens.

It presented evidence to establish that the clergy and lay members of this
religion fully covers the percentage of Filipino citizens required by the
Constitution fact that the law thus expressly authorizes the corporations sole to
receive bequests or gifts of real properties (which were the main source that the
friars had to acquire their big haciendas during the Spanish regime), is a clear
indication that the requisite that bequests or gifts of real estate be for
charitable, benevolent, or educational purposes, was, in the opinion of the
legislators, considered sufficient and adequate protection against the
revitalization of religious landholdings.

As in respect to the property which they hold for the corporation, they stand in
position of TRUSTEES and the courts may exercise the same supervision as in
other cases of trust

POWER AND QUALIFICATION TO PURCHASE IN ITS NAME PRIVATE LANDS; 60

PER CENTUM REQUIREMENT NOT INTENDED TO CORPORATION SOLE. Under
the circumstances of the present case, it is safe to state that even before the
establishment of the Philippine Commonwealth and of the Republic of the
Philippines every corporation sole then organized and registered had by express
provision of law (Corporation Law, Public Act. 1459) the necessary power and
qualification to purchase in its name private lands located in the territory in
which it exercised its functions or ministry and for which it was created,
independently of the nationality of its incumbent unique and single number and
head, the bishop of the diocese. It can be also maintained without fear of being
gainsaid that the Roman Catholic Apostolic Church in the Philippines has no
nationality and that the frames of the Constitution did not have in mind the
religious corporation sole when they provided that 60 per centum of the capital
thereof be owned by Filipino citizens. Thus, if this constitutional provision were
not intended for corporation sole, it is obvious that this could not be regulated
or restricted by said provision.

As the acquisition of the properties is for the benefit of the congregation, the
Roman Catholic Apostolic Administrator of Davao cannot be deprived of the
right to acquire by purchase or donation real properties for charitable,
benevolent and educational purposes, nor of the right to register these
properties in its name in the Register of Deeds of Davao.
Young Auto Supply Co. and Nemesio Garcia vs. CA
G.R. No. 104175
June 25, 1993

FACTS:
October 28, 1987, Young Auto Supply Co. Inc. (YASCO) represented by Nemesio
Garcia, its president, Nelson Garcia and Vicente Sy, sold all of their shares of
stock in Consolidated Marketing & Development Corporation (CMDC) to George
Roxas. The purchase price was P8,000,000.00 payable as follows:
a downpayment of P4,000,000.00
balance of P4,000,000.00 in four post dated checks of P1,000,000.00
each.

After the execution of the agreement, Roxas took full control of the four
markets of CMDC. However, the vendors held on to the stock certificates of
CMDC as security pending full payment of the balance of the purchase price.

The first check of P4,000,000.00, representing the down-payment, was honored

by the drawee bank but the four other checks representing the balance of
P4,000,000.00 were dishonored. In the meantime, Roxas sold one of the
markets to a third party. Out of the proceeds of the sale, YASCO received
P600,000.00, leaving a balance of P3,400,000.00

YASCO to file an action for collection of sum of money in RTC of Cebu. Roxas
failed to answer hence he was declared in default. Without waiting for the
resolution of the motion for lifting the order of default, he filed a petition for
certiorari in CA on the ground of improper venue. CA Dismissed the said petition
for improper venue. Court of Appeals relied on the address of YASCO, as
appearing in the Deed of Sale dated, which is in, Pasay City.

YASCO alleging that the Court of Appeals erred in holding the venue should be in
Pasay City, and not in Cebu City

ISSUE: WON the venue was improperly laid.

HELD: YES. There are two plaintiffs in the case at bench: a natural person and a
domestic corporation. Both plaintiffs aver in their complaint that they are
residents of Cebu City, thus:

Plaintiff Young Auto Supply Co., Inc., ("YASCO") is a domestic corporation

duly organized and existing under Philippine laws with principal place of
business at Cebu City and a branch office at 1708 Dominga Street, Pasay
City, Metro Manila.

Nemesio Garcia is of legal age, married, Filipino citizen and with business
address at Young Auto Supply Co., Inc., M. J. Cuenco Avenue, Cebu City.

The Article of Incorporation of YASCO (SEC Reg. No. 22083) states:

That the place where the principal office of the corporation is to
be established or located is at Cebu City, Philippines (as amended
 on December 20, 1980 and further amended on December 20,
1984)

A corporation has no residence in the same sense in which this term is applied
to a natural person. But for practical purposes, a corporation is in a
metaphysical sense a resident of the place where its principal office is located as
stated in the articles of incorporation.

The Corporation Code precisely requires each corporation to specify in its

articles of incorporation the "place where the principal office of the corporation
is to be located which must be within the Philippines." The purpose of this
requirement is to fix the residence of a corporation in a definite place, instead of
allowing it to be ambulatory.

Actions cannot be filed against a corporation in any place where the

corporation maintains its branch offices. The Court ruled that to allow an action
to be instituted in any place where the corporation has branch offices, would
create confusion and work untold inconvenience to said entity. By the same
token, a corporation cannot be allowed to file personal actions in a place other
than its principal place of business unless such a place is also the residence of a
co-plaintiff or a defendant.

With the finding that the residence of YASCO for purposes of venue is in Cebu
City, where its principal place of business is located, it becomes unnecessary to
decide whether Garcia is also a resident of Cebu City and whether Roxas was in
estoppel from questioning the choice of Cebu City as the venue.

The decision of the Court of Appeals was set aside.

Philips Export B.V. vs. CA
G.R. No. 96161
February 21, 1992

FACTS:
Philips Export B.V. (PEBV) filed with the SEC for thecancellation of the word
Philips the corporate name of Standard Philips Corporation in view of its prior
registration with the Bureau of Patents and the SEC. However, StandardPhilips refused to
amend its Articles of Incorporation soPEBV filed with the SEC a petition for the issuance
of a Writof Preliminary Injunction, however this was denied rulingthat it can only be done
when the corporate names areidentical and they have at least two words different.
Thiswas affirmed by the SEC en banc and the Court of Appealsthus the case at bar.

ISSUE:WON Standard Philips can be enjoined from usingPhilips in its corporate

name.HELD: YES. A corporations right to use its corporate andtrade name is a property
right, a right in rem, which it mayassert and protect against the whole world. According
toSec. 18 of the Corporation Code, no corporate name may beallowed if the proposed
name is identical or deceptivelyconfusingly similar to that of any existing corporation or
toany other name already protected by law or is patentlydeceptive, confusing or contrary
to existing law.For the prohibition to apply, two requisites must bepresent: (1) the
complainant corporation must haveacquired a prior right over the use of such corporate
nameand; (2) the proposed name is either identical or deceptivelyor confusingly similar
to that of any existing corporation orto any other name already protected by law or
patentlydeceptive, confusing or contrary to existing law.

Lyceum of the Phils. vs. CA

G.R. No. 101897
March 5, 1993

FACTS:

Petitioner is an educational institution duly registered with the SEC since 1950. Before
the case at bar, petitioner commenced a proceeding against Lyceum of Baguio with the
SEC to require it to change its corporate name and adopt a new one not similar or
identical to the petitioner. SEC granted noting that there was substantial similarity
because of the dominant word Lyceum.

CA and SC affirmed. Petitioner filed similar complaint against other schools and obtains a
favorable decision from the hearing officer. On appeal, SEC en banc reversed the decision
and held that the word Lyceum has not become so identified with the petitioner and that
the use thereof will not cause confusion to the general public.

ISSUES:
1. WON the corporate names of the private respondents are identical with or deceptively
similar to that of the petitioner.
2. WON the use by the petitioner of Lyceum in its corporate name has been for such
length of time and with such exclusivity as to have become associated or identified with
the petitioner institution in the mind of the general public (Doctrine of Secondary
meaning).
HELD:
NO, to both. True enough, the corporate names of the parties carry the word Lyceum
but confusion and deception are precluded by the appending of geographic names.
Lyceum generally refers to a school or an institution of learning and it is natural to use
this word to designate an entity which is organized and operating as an educational
institution.

Doctrine of Secondary meaning is a word of phrase originally incapable of exclusive

appropriation, might nevertheless have been used so long and so exclusively by one
producer with reference to his article that, in trade and to that branch of the purchasing
public, the word or phrase has come to mean that the article was his product. Lyceum of
the Philippines has not gained exclusive use of Lyceum by long passage of time. The
number alone of the private respondents suggests strongly that the use of Lyceum has
not been attended with the exclusivity essential for the applicability of the doctrine. It
may be noted that one of the respondents Western Pangasinan Lyceum used such term
17 years before the petitioner registered with the SEC. Moreover, there may be other
schools using the name but not registered with the SEC because they have not adopted
the corporate form of organization.

Armco Steel Corp. vs. SEC

G.R. No. L-54580
December 29, 1987

FACTS:

ARMCO Steel Corp. is a corporation organized in Ohio, USA, hereinafter called ARMCO-
OHIO. ARMCO Marsteel-Alloy Corporation was incorporated in the Philippines under its
original name Marsteel Alloy Company,Inc. but its name was changed to ARMCO-
Marsteel AlloyCorporation hereinafter called ARMCO-Marsteel, byamendment of its
Articles of Incorporation after the ARMCO-Ohio purchased 40% of its capital stock. Both
saidcorporations are engaged in the manufacture of steelproducts.On the other hand,
ARMCO Steel Corporation wasincorporated in the Philippines, hereinafter called ARMCO-
Philippines. A pertinent portion of its articles of incorporation provides as among its
purposes: "to contract,fabricate ... manufacture ... regarding pipelines, steelframes ...
."ARMCO-Ohio and ARMCO-Marsteel then filed apetition in the SEC to compel ARMCO-
Philippines to changeits corporate name on the ground that it is very similar, if not
exactly the same as the name of one of the petitioners.SEC granted the petition.
Respondent amended its articlesof incorporation by changing its name to
"ARMCOstructures, Inc." which was filed with and approved by theSEC. Petitioners filed a
comment alleging that the change of name of said respondent was not done in good
faith and isnot in accordance with the order of the Commission whichwas to take out
ARMCO and substitute another word in lieuthereof in its corporate name by amending
the articles of incorporation.ISSUE:WON ARMCO-Philippines had substantially compliedin
good faith with said order and said compliance hadachieved the purpose of the order, by
changing itscorporate name with the approval of SEC.HELD:NO. The said amendment in
the corporate name of petitioner is not in substantial compliance with the order.
Torepeat, the order was for the removal of the word "ARMCO"from the corporate name
of the petitioner which it failed todo. And even if this change of corporate name
waserroneously accepted and approved in the SEC it cannotthereby legalize nor change
what is clearly unauthorized if not contemptuous act of petitioner in securing
theregistration of a new corporate name against the veryprevious order of the SEC.
Certainly the said previous orderis not rendered
functus oficio
thereby. Had petitionerrevealed at the time of the registration of its amendedcorporate
name that there was the said order, theregistration of the amended corporate name
could not havebeen accepted and approved by the persons in-charge of

the registration. The actuations in this respect of petitionerare far from regular much less
in good faith.Noted in fact, ARMCO STEEL-PHILIPPINES has not onlyan identical name but
also a similar line of business. Peoplewho are buying and using products bearing the
trademark"Armco" might be led to believe that such products aremanufactured by the
respondent, when in fact, they mightactually be produced by the petitioners. Thus, the
goodwillthat should grow and inure to the benefit of petitionerscould be impaired and
prejudiced by the continued use of the same term by the respondent.

P.C. Javier & Sons vs. CA

G.R. No. 129552;
June 29, 2005

FACTS:

Petitioner applied with First Summa Bank for a loanaccommodation under the Industrial
Guarantee Loan Fund(IGLF). The corporation through Pablo Javier was advisedthat its
loan application was approved and that the sameshall be forwarded to the Central Bank
for processing. TheCentral Bank released the loan. To secure the loan, Javierexecuted
chattel mortgage in favor of the bank. In themeantime, the bank changed its named to
PAIC Savings andMortgage Bank Inc. Thereafter, the corporation failed topay; this
prompted the bank to move for the extrajudicialforeclosure of the mortgages. Petitioner
filed an action torestrain the extrajudicial foreclosure on the ground that FirstSumma
Bank and PAIC Bank are separate entities.ISSUE:WON the debtor should be formally
notified of thecorporate creditors change of name.HELD:NO. There is no such
requirement under the law orany regulation ordering a bank that changes its
corporatename to formally notify all its debtors. This Court cannotimpose on a bank that
changes its corporate name to notifya debtor of such change absent any law, circular
orregulation requiring it. Such act would be judiciallegislation. The formal notification is,
therefore,discretionary on the bank. Unless there is a law, regulationor circular from the
SEC or BSP requiring the formalnotification of all debtors of banks of any change
incorporate name, such notification remains to be a mereinternal policy that banks may
or may not adopt.A change in the corporate name does not make anew corporation,
whether effected by a special act or undera general law.It has no effect on the identity of
thecorporation, or on its property, rights, or liabilities. Thecorporation, upon such change
in its name, is in no sense anew corporation, nor the successor of the originalcorporation.
It is the same corporation with a differentname, and its character is in no respect
changed.

Pioneer Insurance vs. CAG.R. No. 84197; July 28, 1989FACTS: Jacob S. Lim is an owner-
operator of Southern Airlines(SAL), a single proprietorship. Japan Domestic Airlines
(JDA)and Lim entered into a sales contract. Pioneer Insuranceand Surety Corp. as surety
executed its surety bond in favorof JDA on behalf of its principal Lim. Border Machinery
andHeacy Equipment Co, Inc., Francisco and ModestoCervantes, and Constancio Maglana
contributed funds forthe transaction based on the misrepresentation of Lim thatthey will
form a new corporation to expand his business.Lim as SAL executed in favor of Pioneer a
deed of chattel mortgage as security. Restructuring of obligation tochange the maturity
was done twice without the knowledgeof the other defendants. Upon default on the
payments,Pioneer paid for him and filed a petition for the foreclosureof chattel mortgage
as security. Maglana, Bormaheco andthe Cervantess filed cross-claims against Lim
alleging tha

they were not privies to the contracts signed by Lim and, byway of counterclaim, sought
for damages for being exposedto litigation and for recovery of the sums of money
theyadvanced to Lim for the purchase of the aircrafts inquestion. After trial on the
merits, a decision was renderedholding Lim liable to pay Pioneer but dismissed
Pioneer'scomplaint against all other defendants.ISSUE:WON failure of the respondents to
incorporateautomatically resulted to de facto partnership.HELD:NO. Partnership inter se
does not necessarily exist,for ordinarily persons cannot be made to assume therelation of
partners as between themselves, when theirpurpose is that no partnership shall exist and
it should beimplied only when necessary to do justice between theparties; thus, one who
takes no part except to subscribe forstock in a proposed corporation which is never
legallyformed does not become a partner with other subscriberswho engage in business
under the name of the pretendedcorporation, so as to be liable as such in an action
forsettlement of the alleged partnership and contribution. The petitioner, in his answer,
denied having receivedany amount from respondents Bormaheco, the Cervantessand
Maglana. It is therefore clear that the petitioner neverhad the intention to form a
corporation with therespondents despite his representations to them. Applyingtherefore
the principles of law, no de facto partnership wascreated among the parties which would
entitle thepetitioner to a reimbursement of the supposed losses of theproposed
corporation.

Pioneer Insurance & Surety Corporation vs Court of Appeals

Jacob Lim was the owner of Southern Air Lines, a single proprietorship. In 1965, Lim
convinced Constancio Maglana, Modesto Cervantes, Francisco Cervantes, and Border
Machinery and Heavy Equipment Company (BORMAHECO) to contribute funds and to
buy two aircrafts which would form part a corporation which will be the expansion of
Southern Air Lines. Maglana et al then contributed and delivered money to Lim.

But instead of using the money given to him to pay in full the aircrafts, Lim, without the
knowledge of Maglana et al, made an agreement with Pioneer Insurance for the latter to
insure the two aircrafts which were brought in installment from Japan Domestic Airlines
(JDA) using said aircrafts as security. So when Lim defaulted from paying JDA, the two
aircrafts were foreclosed by Pioneer Insurance.

It was established that no corporation was formally formed between Lim and Maglana et
al.

ISSUE: Whether or not Maglana et al must share in the loss as general partners.

HELD: No. There was no de facto partnership. Ordinarily, when co-investors agreed to do
business through a corporation but failed to incorporate, a de facto partnership would
have been formed, and as such, all must share in the losses and/or gains of the venture in
proportion to their contribution. But in this case, it was shown that Lim did not have the
intent to form a corporation with Maglana et al. This can be inferred from acts of
unilaterally taking out a surety from Pioneer Insurance and not using the funds he got
from Maglana et al. The record shows that Lim was acting on his own and not in behalf of
his other would-be incorporators in transacting the sale of the airplanes and spare parts.

Municipality of Malabang vs. BenitoG.R. No. L-28113; March 28, 1969FACTS:Petitioner

Balindong is the municipal mayor of Malabang, Lanao del Sur while respondents are
MayorBenito and councilors of Municipality of Balabagan of thesame province.
Balabagan (formerly part of Malabang) wascreated by Executive Order 386 of the then
President CarlosP. Garcia, out of barrios and sitios of the Malabang.Citing
Pelaez
ruling that Republic Act 2370 (BarrioCharter Act), vested power to create barrios in
theprovincial board, and Section 68 of the Administrative Code,insofar as it gives the
President the power to createmunicipalities, is unconstitutional. Petitioner sought
tonullify E.O. 386 and restrain respondents from performingtheir official functions.
Respondents argued that
Pelaez
ruling did not apply because unlike the municipalitiesinvolved therein, the municipality of
Balabagan is at least ade facto corporation, having been organized under color of
astatute before this was declared unconstitutional (by
Pelaez
ruling), its officers having been either elected or appointed,and the municipality itself
having discharged its corporatefunctions for the past five years preceding the institution
of this action.ISSUE:WON a corporation organized under a statutesubsequently declared
void acquires status as de factocorporation.HELD:NO. A corporation organized under a
statutesubsequently declared invalid cannot acquire the status of ade facto corporation
unless there is some other statuteunder which the supposed corporation may be
validlyorganized. Hence, in the case at bar, the mere fact that themunicipality was
organized before the statute had beeninvalidated cannot conceivably make it a de
factocorporation since there is no other valid statute to give colorof authority to its
creation.

Hall vs. PiccioG.R. No. L-2598; June 29, 1950FACTS:Petitioners Arnold Hall, Bradley Hall
and privaterespondents Fred Brown, Emma Brown, Hipolita Chapmanand Ceferino Abella
signed and acknowledged the AOI of theFar Eastern Lumber and Commercial Co., Inc.
organized toengage in a general lumber business to carry on as generalcontractors,
operators and managers.Immediately after the execution of the articles of incorporation,
the corporation proceeded to do businesswith the adoption of by-laws and the election
of its officers. Then, the articles of incorporation were filed in SEC for theissuance of the
corresponding certificate of incorporation.Pending action on the AOI, private
respondents fileda civil case against the Halls alleging among other thingsthat Far Eastern
Lumber and Commercial Co, was anunregistered partnership and that they wished to
have itdissolved because of bitter dissension among the members,mismanagement and
fraud by the managers and heavyfinancial losses. The petitioners filed a Motion to
Dismisscontesting the courts jurisdiction and the sufficiency of thecause of action but
Judge Piccio ordered the dissolution of the company and appointed a
receiver.ISSUE:WON the court had jurisdiction to decree thedissolution of the company
because it being a de factocorporation, dissolution may only be ordered in a
quowarranto proceeding in accordance with Section 19.HELD: YES. The court had
jurisdiction but Section 19 doesnot apply. It held that there was no de facto corporation
onthe ground that the corporation cannot claim to be in goodfaith to be a corporation
when it has not yet obtained itscertificate of incorporation. The immunity of collateral
attack is granted tocorporations claiming in good faith to be corporation underthis act.
Such a claim is compatible with the existence of errors and irregularities but not with a
total or substantialdisregard of the law. Unless there has been an evidentattempt to
comply with the law, the claim to be acorporation under this act could not be made in
goodfaith.Moreover, this is not a suit in which the corporation isa party. This is litigation
between stockholders of thealleged corporation for the purpose of obtaining
itsdissolution. Even the existence of a de jure corporation maybe terminated in a private
suit for its dissolution betweenstockholders, without the intervention of the state.
Cagayan Fishing vs. SandikoG.R. No. L-43350; December 23, 1937FACTS:Manuel Tabora is
the registered owner of four parcelsof land. The four parcels were mortgaged for loans
andindebtedness. However, Tabora executed a public document(Exhibit A) by virtue of
which the four parcels of land ownedby him was sold to the plaintiff company, which at
that timeis still under the process of incorporation.A year later, the BOD of said company
adopted aresolution authorizing its president to sell the four parcels of lands in question
to Teodoro Sandiko. Exhibits B, C and Dwere thereafter made and executed. Exhibit B is a
deed of sale where the plaintiff sold, ceded and transferred to thedefendant the four
parcels of land. Exhibit C is a promissorynote drawn by the defendant in favor of the
plaintiff. ExhibitD is a deed of mortgage executed where the four parcels of land were
given a security for the payment of thepromissory note. Defendant failed to pay thus
plaintiff fileda collection of sum of money in the Court of First Instance in

Manila. The latter rendered judgment absolving thedefendant. Plaintiff has appealed to
this court and makes anassignment of various errors.ISSUE:WON the sale made by the
plaintiff corporation isvalid.HELD:NO. The transfer was made almost five monthsbefore
the incorporation of the company. Although, a dulyorganized corporation has the power
to purchase and holdsuch real property as the purposes for which suchcorporation was
formed may permit and for this purposemay enter into such contracts as may be
necessary.However before a corporation may be said to be lawfullyorganized, many
things have to be done. Among otherthings, the law requires the filing of articles of
incorporation.Although there is a presumption that all therequirements of law have been
complied with, in the casebefore us it can not be denied that the plaintiff was not
yetincorporated when it entered into a contract of sale. It wasnot even a de facto
corporation at the time. Not being inlegal existence then, it did not possess juridical
capacity toenter into the contract.Corporations are creatures of the law, and can
onlycome into existence in the manner prescribed by law. Itshould have a full and
complete organization and existenceas an entity before it can enter into any kind of a
contract ortransact any business.

Harill vs. Davis168 F. 187; 1909FACTS: The constitutive documents were filed with the
clerkof the Court of Appeals but not with the clerk of court in the judicial district where
the business was located. Arkansaslaw requires filing in both offices.ISSUE:Was there
colorable compliance enough to give thesupposed corporation at least the status of a
de factocorporation?HELD:NO. Neither the hope, the belief, nor the statementby
parties that they are incorporated, nor the signing of thearticles of incorporation which
are not filed, where filing isrequisite to create the corporation, nor the use of
thepretended franchise of the nonexistent corporation, willconstitute such a corporation
de facto as will exempt thosewho actively and knowingly use s name to incur
legalobligations from their individual liability to pay them. Therecould be no
incorporation or color of it under the law untilthe articles were filed (requisites for valid
incorporation).
Asia Banking Corp. vs. Standard Products Co.G.R. No. 22106; September 11, 1924FACTS:
The plaintiff corporation sued defendant corporationfor failure to pay the promissory
note. Trial court rendered judgment in favor of plaintiff. Defendant appealed and
itsdefense was that the plaintiff failed to prove affirmativelythe corporate existence of
the parties and the appellantinsists that under these circumstances the court erred
infinding that the parties were corporations with juridicalpersonality and assigns same as
reversible error.ISSUE:WON plaintiff was unable to prove its corporateexistence.HELD:
NO. The general rule is that in the absence of fraud aperson who has contracted or
otherwise dealt with anassociation in such a way as to recognize and in effectadmit its
legal existence as a corporate body is therebyestopped to deny its corporate existence in
any actionleading out of or involving such contract or dealing, unlessits existence is
attacked for cause which have arisen sincemaking the contract or other dealing relied on
as anestoppel and this applies to foreign as well as to domesticcorporations.Hence, the
defendant is estopped from denying itsown corporate existence. It is also estopped from
denyingthe others corporate existence.
Cranson vs. International Business Machines Corp.234 MD. 477, 200 A. 2D 33;
1964FACTS:Cranson was asked to be an investor in a newbusiness corporation and after
he acceded, there are otherpeople who had formed the corporation with him. A
stockcertificate evidencing his ownership of shares in thecorporation was given to him.
The transactions were doneas if it were a corporation and eventually Cranson waselected
president and all the dealings with IBM wereconducted by him for the corporation. At no
time did heassume personal obligation or pledge his individual credit toIBM. But the
lawyers of the corporation made an oversightof not filing the certificate of incorporation
and when claimfor payment were charged against the Real Estate ServiceBureau, IBM
charged Cranson in his personal capacity.ISSUE:WON a defectively incorporated
association wouldwarrant a charge against officers in their personal capacity.HELD:NO.
Traditionally, two doctrines have been used bythe courts to clothe an officer of a
defectively incorporatedassociation with the corporate attribute of limited liability. The
first, often referred to as the doctrine of de factocorporations, has been applied in those
cases where thereare elements showing: (1) the existence of law
authorizingincorporation: (2) an effort in good faith to incorporateunder the existing law;
and (3) actual user or exercise of corporate powers. The second, doctrine of
estoppel:employed when the person seeking to hold the officerpersonally liable has
contracted or otherwise dealt with theassociation in such a manner as to recognize and
in effectadmit its existence as a corporate body.When there is a concurrence of the three
elementsnecessary for the application of the de facto corporationdoctrine, there exists
an entity which is a corporation de jure against all persons BUT THE STATE. On the other
hand,the estoppel theory is applied only to the facts of eachparticular case and may be
invoked even when there is nocorporation de facto.IBM, having dealt with the Bureau as
if it were acorporation and relied on its credit rather than that of Cranson, is estopped to
assert that the Bureau was notincorporated at the time the typewriters were
franchised.Where one has recognized the corporate existence of an association, he is
estopped to assert the contrary withrespect to claim arising out of such dealings.
Salvatierra vs. Garlitos et. al.G.R. No. L-11442; May 23, 1958FACTS:Salvatierra leased his
land to the corporation. Hefiled a suit for accounting, rescission and damages againstthe
corporation and its president for his share of theproduce. Judgment against both was
obtained. Thepresident of the corporation complains for being heldpersonally
liable.ISSUE:WON the president can be personally held liable toplaintiff.HELD: YES. He is
liable. The general rule is that a personwho has contracted or dealt with an association in
such away as to recognize its existence as a corporate body isESTOPPED from denying
the same in an action arising out of such transaction or dealing, unless there is fraud in
thetransaction.A person who acts as an agent without authority orwithout a principal is
himself regarded as the principal,possessed of all the rights and subject to all the
liabilities of a principal, a person acting or purporting to act on behalf of a corporation
which has no valid existence assumes suchprivileges and obligations and becomes
personally liable forcontracts entered into or for other acts performed as suchagent.
Albert vs. University Publishing Co.G.R. No. L-19118; January 30, 1965FACTS:Mariano
Albert entered into a contract with UniversityPublishing Co., Inc. through Jose M. Aruego,
its President,whereby University would pay plaintiff for the exclusiveright to publish his
revised Commentaries on the RevisedPenal Code. The contract stipulated that failure to
pay oneinstallment would render the rest of the payments due.When University failed to
pay the second installment, Albertsued for collection and won. However, upon
execution, itwas found that University was not registered with the SEC.Albert petitioned
for a writ of execution against Jose M.Aruego as the real defendant. University opposed,
on theground that Aruego was not a party to the case.ISSUE:WON Aruego can be held
personally liable to theplaintiff.HELD: YES. The Supreme Court found that
Aruegorepresented a non-existent entity and induced not onlyAlbert but the court to
believe in such representation.Aruego, acting as representative of such non-
existentprincipal, was the real party to the contract sued upon, andthus assumed such
privileges and obligations and becamepersonally liable for the contract entered into or
for otheracts performed as such agent. One who has inducedanother to act upon his
wilful misrepresentation that acorporation was duly organized and existing under the
law,cannot thereafter set up against his victim the principle of corporation by estoppel
The Supreme Court likewise held that the doctrine of corporation by estoppel cannot be
set up against Albertsince it was Aruego who had induced him to act upon his(Aruego's)
willful representation that University had beenduly organized and was existing under the
law.

Chiang Kai Shek School vs. CAG.R. No. L-58028; April 18, 1989FACTS:Fausta F. Oh
reported for work at the Chiang Kai ShekSchool in Sorsogon on the first week of July,
1968. She wastold she had no assignment for the next semester. Oh wasshocked for she
had been teaching in the school since1932for a continuous period of almost 33 years.
And now, for noapparent or given reason, this abrupt dismissal. Shedemanded
separation pay, social security benefits, salardifferentials, maternity benefits and moral
and exemplarydamages. The original defendant was the Chiang Kai ShekSchool but when
it filed a motion to dismiss on the groundthat it could not be sued, the complaint was
amended.Certain officials of the school were also impleaded to makethem solidarily
liable with the school. Court of First Instanceof Sorsogon dismissed the complaint. On
appeal, its decisionwas set aside by the respondent court, which held theschool suable
and liable while absolving the otherdefendants.ISSUE:WON a school that has not been
incorporated may besued by reason alone of its long continued existence andrecognition
by the government.HELD: YES. Having been recognized by the government, itwas under
obligation to incorporate under the CorporationLaw within 90 days from such
recognition. It appears that ithad not done so at the time the complaint was
filednotwithstanding that it had been in existence even earlierthan 1932. The petitioner
cannot now invoke its own non-compliance with the law to immunize it from the
privaterespondent's complaint. There should also be no question that havingcontracted
with the private respondent every year for thirtytwo years and thus represented itself as
possessed of juridical personality to do so, the petitioner is now estoppedfrom denying
such personality to defeat her claim against it.According to Article 1431 of the Civil Code,
"throughestoppel an admission or representation is renderedconclusive upon the person
making it and cannot be deniedor disproved as against the person relying on it."
Lim Tong Lim vs. Phil. Fishing Gear IndustriesG.R. No. 136448; November 3,
1999FACTS:Chua and Yao entered into a contract for thepurchase of fishing nets on
behalf of Ocean Quest FishingCorp. from Phil Fishing Gear Industries. Chua and
Yaoclaimed that they were engaged in a business with Lim TongLim but who was not a
signatory to the agreement. Theyfailed to pay thus PFGI filed collection suit against the
three:Chua, Yao and Lim as general partners because OceanQuest is a non-existing
corporation as shown by a certificatefrom SEC. Lim filed for the lift of the Writ of
Attachment butRTC maintained the writ and ordered the sale of the nets.RTC maintains
that there is partnership because of theCompromise Agreement entered by them,
although silent asto the nature of their obligations but presumes that there isequal
distribution of the profit and loss. CA affirmed.ISSUE:WON Lim may be regarded as a
partner when thesole basis is the Compromise Agreement and notconsidering the fact
that he has not signed any transactionnor met any of the representatives of the Phil.
FishingGears.HELD: YES. There is partnership. It is clear in the factualfindings that they
have decided to engage in a fishingbusiness where they bought boats from the loan they
gotfrom J. Lim, who is Lims brother. The partnership extendednot only to the boats but
also to the nets and the floats.In their Compromise Agreement, they
subsequentlyrevealed their intention to pay the loan with the proceeds of the sale of the
boats, and to divide equally among them theexcess of loss. These boats, the purchase
and the repair of which were financed with borrowed money, fell under theterm
common fund under Article 1767. The contribution tosuch fund need not be case of
fixed assets; it could be anintangible like credit or industry. That the parties agreedthat
any loss or profits from the sale and operation of the
boats would be divided early among them also shows thatthey had indeed formed a
partnership. Technically, it is true that petitioner did not directlyact on behalf of the
corporation. However, having reapedthe benefits of the contract entered into by person
withwhom he previously had an existing relationship, he isdeemed to be part of said
association and is covered by thescope of the doctrine of corporation by estoppel.
International Express Travel vs. CAG.R. No. 119002; October 19, 2000FACTS:Express
Travel wrote a letter to the Phil. FootballFederation thru the president Henry Kahn
offering itsservices to the latter and Kahn accepted this. The federationconsisting of
athletes and officials, went to the South EastAsian Games in Malaysia and other trips to
other countries.Federation incurred expenses and made two partialpayments. Kahn
issued a personal check as a partialpayment then failed to pay thereafter. Express Travel
suedHenry Kahn in his personal capacity and as president andimpleaded the federation
as an alternative defendant.Henry Kahn allege that there is no cause of action againsthim
in his personal capacity or official capacity and that hedid not guarantee the payment
and merely acted as anagent. RTC ruled that Henry Kahn is personally liable andthat
there is no proof that the federation has a corporateexistence. CA reversed on the
ground that Federation has juridical existence.ISSUE:WON Federation has a juridical
existence.HELD:NO. The basis of CA that RA 3135 Revised Charter of the Phil. Amateur
Athletic Federation and PD 604 thatrecognizes the juridical existence of National
SportsAssociation is not correct. Mere passage of these laws DOESNOT AUTOMATICALLY
vest the associations a CORPORATESTATUS. The State must give its consent: in the form
of aspecial law of a general enabling act. These laws merelyrecognized the existence of
national sports associations.Henry Kahn shall be held liable for the unpaidobligations of
the unincorporated Federation. It is a settledrule that any person acting or purporting to
act on behalf of a corporation which has no valid existence assumes suchprivileges and
obligations and becomes personally liable forcontracts entered into or for other acts
performed as suchagent.Petitioner cannot be held estopped because thedoctrine of
corporation by estoppel is mistakenly applied bythe respondent court to the petitioner.
The application of the doctrine applies to a third party only when he tries toescape
liability on a contract from which he has benefitedon the irrelevant ground of defective
corporation. Petitioneris not trying to escape liability but is the one claiming fromthe
contract.